ST. LOUIS — Emerson announced net sales in the second quarter ended March 31, 2017 were flat on both a net and underlying basis. The second quarter results reflected a continued improvement in served markets across both platforms. Within the regions, growth in the United States, Europe and Asia, particularly in China, was offset by declines in Middle/East Africa and Latin America. Five percent growth in the Commercial & Residential Solutions platform was driven by favorable HVAC, refrigeration and construction related markets. The Automation Solutions platform was down low-single digits. However, MRO activity in energy related markets continues to strengthen, particularly in North America, and power and life sciences markets remained favorable.
All profitability measures increased in the second quarter. Gross profit margin of 43.6 percent improved 50 basis points versus the prior year primarily due to savings from restructuring activities in 2016. Pretax margin of 15.8 percent and EBIT margin of 17.0 percent increased 40 and 30 basis points respectively. Earnings per share from continuing operations of $0.58 increased 2 percent. Earnings per share were $0.45, down 21 percent, including a ($0.13) impact from discontinued operations related to the completed sales of the Network Power, Leroy-Somer and Control Techniques businesses.
“Following our solid first quarter, the second quarter results again exceeded our expectations delivering continued profitability improvement over the prior year,” said Chairman and Chief Executive Officer David N. Farr. “During the quarter we saw improving demand across both of our platform businesses, positioning us for a stronger second half of the year. Considering our solid performance in the first half of the fiscal year and current order trends, we are raising our full year sales and EPS guidance. We now expect earnings per share from continuing operations to be $2.55 to $2.65, versus our prior guidance of $2.47 to $2.62. This EPS guidance assumes full year sales are approximately flat with underlying sales up approximately 1 percent excluding unfavorable currency translation.”
Business Platform Results
Automation Solutions net and underlying sales decreased 3 percent. Demand conditions continued to improve within many of our key served markets. Power and life sciences markets continued to demonstrate positive momentum during the quarter and are expected to support growth in the second half of 2017. MRO activity in energy related markets remained favorable, particularly in North America, and should hold up globally as we move further into 2017. Underlying sales in North America were down 2 percent. MRO order rates continued to strengthen driven by shale and downstream customers. Project activity in combined cycle and natural gas power facilities was favorable in the quarter. Asia was down 2 percent, with China up 10 percent reflecting broad strength within our served markets and favorable turnaround activity. In other regions, Europe was flat, Middle East/Africa was down 9 percent and Latin America was down 16 percent. Margin decreased 10 basis points to 15.5 percent, primarily due to deleverage on lower volume. Based on current and expected order trends, the business expects the second half of the fiscal year to continue to improve with underlying sales trends turning positive driven by MRO and small project activity.
Commercial & Residential Solutions net and underlying sales increased 5 percent reflecting a continuation of strong demand in global HVAC and refrigeration markets and favorable conditions in construction related markets. Underlying sales in North America increased 4 percent, led by solid growth in air conditioning as well as favorable demand for tools from oil and gas customers and do-it yourself products from big box retailers. Asia increased 13 percent as broad strength in air conditioning and refrigeration markets continued across most of the region, particularly China which was up 20 percent. In other regions, Latin America was up 7 percent, Europe was up 6 percent and Middle East/Africa was down 3 percent. Margin increased 80 basis points to 23.7 percent, primarily due to leverage on higher volume and savings from restructuring actions. This platform has expanded profitability 170 basis points since the end of fiscal 2014 and with consistent global growth expected in HVAC end-markets, we are increasing strategic investments to better position the business for stronger growth through new technologies and markets. A favorable outlook for global demand within our served markets supports the expectation for mid-single digit growth in fiscal 2017.
2017 Outlook
Full-year net sales are now expected to be approximately flat, with underlying sales up approximately 1 percent excluding unfavorable currency translation of approximately 1 percent. Earnings per share from continuing operations guidance is being raised to $2.55 to $2.65. Automation Solutions net sales are expected to be down 3 to 4 percent, with underlying sales down 2 to 3 percent excluding unfavorable currency translation of approximately 1 percent. Commercial & Residential Solutions net and underlying sales are expected to be up 5 to 6 percent. This outlook excludes any impact related to the acquisition of the Pentair Valves & Controls business, which was completed on April 28th. The timing of the closure has not afforded the Company sufficient time to fully incorporate the impact of this business into our guidance. On today’s conference call we will provide initial estimates of the expected impact to the remainder of the fiscal 2017. More detailed information on the Valves & Controls business and its impact to guidance will be provided in the coming months.
“Thanks to the success of our multi-year restructuring actions and with the momentum established by our two platform businesses, we’re well positioned for what we expect to be a stronger second half of the year,” said Farr. “We are encouraged by improving economic conditions and positive trends in capital spending. Our current order trends support positive sales growth in the second half of fiscal 2017 and leading into fiscal 2018. As we begin the third quarter, we remain focused on improving profitability and cash flow while continuing our portfolio repositioning to expand our leadership position in key served markets as evidenced by our recent completion of the Valves & Controls acquisition from Pentair. The final control management team will now focus on an aggressive integration over the remaining five months of the fiscal year.”
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